By Dennis Chung
LAST year I sat on a panel to discuss the state of the economy. Someone in the audience correctly stated that much work was being done by the government to improve the business and economic landscape, but asked why the private sector will not invest if the government has done its part.
I told him that he was also a part of the private sector and suggested if he saw the opportunity to invest, then he should not want anyone to invest before he does, and that he should make the investment. And even if he has to secure a loan, he should take the risk or he could use his savings to do so. His response was that he would not risk his meagre savings in an investment, and he didn’t want to borrow any money either.
I asked him who he referred to as the private sector, as I thought that everyone who is not a part of the public sector is in the private sector.
This illustrates the view that many persons have: The private sector is someone else, not me. Nothing could be further from the truth.
Consequently if you do not see an opportunity that would cause you to risk your own money, why do you expect that there is a private sector out there that will?
But the question persists. Why doesn’t the private sector step up to the plate, now that the government has done so much to facilitate businesses? However, I would pose the question this way: Is this the right time for me to make an investment, and if my answer is yes, I would ask why no one else has made the investment; not to urge anyone else to invest before me but to assure myself that my own assessment is right. I don’t think that I can ask someone to risk their own money when I am not willing to invest mine.
I do agree, and have said repeatedly, that the current reform programme is moving in the right direction, with the various fiscal and legislative adjustments being made. This has resulted in Jamaica moving up 27 places in the Doing Business Report; being named the best place in the Caribbean to do business; and having business and consumer confidence at yearly highs. I get a real feeling also that businesses are looking at even more investments, which will begin to show and pay off for the economy.
We must understand though that (i) mobilization of capital is not easy, so even when there are positive changes capital just doesn’t appear out of thin air; (ii) even though confidence has improved it doesn’t mean that we are now more competitive for investments than other countries, as they are not just sitting down and waiting on us; and (iii) regaining enough confidence for action is a process, as we have had more than 40 years of mistrust between the private and public sectors. If you have had even one year of mistrust in a relationship and you are making an effort to improve it, does it go back to where it was overnight?
There are, of course, many things that erode trust and confidence. These include:
* Even though this year we have had a more proactive budget process, we must remember that every year the country (including businesses) holds its collective breath about what new taxes are coming — removing the predictability of business. Any one tax measure can change a business model in an instant.
* Many persons who invested in government paper saw their cash flows and values affected by the first debt exchange in 2010, and subsequent ones. These actions changed the return and cost of capital overnight, even though unavoidable.
* We must also remember that we have just gone through a raft of legislative changes, which still continue, and it takes time for businesses to assimilate all the changes, which is the prudent thing to do before investing.
* The bureaucracy is still a significant issue, especially for those SMEs which cannot afford a courier service. It still consumes a lot of time to pay taxes, despite the improvements by TAJ. And attempts at the improvements have not been smooth as there have been reports of challenges with the new forms and new system. The bright spot is that TAJ’s response has been very good, and they continue to be an example of good customer service in the public sector. On the downside we are told that the cost of exporting to New York from the Dominican Republic is less than the cost of getting the container on a ship here.
* Crime is still a problem, even though there have been improvements. Much of the crime is domestic violence but the perception of an unsafe environment still exists.
* Last year drought conditions cost farmers significant losses, while the NWC continues to have the majority of its water unaccounted for and the dams are full of silt. Also last year ChickV resulted in an estimated 13 million man hours lost, and approximately 0.5 per cent of GDP. Between the drought and ChickV the GDP lost was around one to 1.5 per cent.
* Now we have the Riverton fire, which has caused untold health problems, and many businesses have lost hundreds of millions in revenue and citizens have lost income. Businesses also have to pay employees wages despite losing income to a crisis that could have been avoided.
The fact, though, is that there have been significant investments over the past year, but long-term investing is not like buying and selling, which is what we have become accustomed to. It takes time to show returns.
So when we next wonder why the private sector is not stepping up to the plate and investing as it should, remember that the private sector is everyone outside of government, and if we do not feel like risking our own money in investments, then why do we ask others to do so? The other way the question can be asked is, why do we not buy the domestic product even when it is much more expensive than the import, or why do so many of us choose to migrate instead of staying and helping to build Jamaica?
Dennis Chung is a chartered accountant and is currently Vice President of the Institute of Chartered Accountants of Jamaica. He has written two books: Charting Jamaica’s Economic and Social Development – 2009; and Achieving Life’s Equilibrium – balancing health, wealth, and happiness for optimal living – 2012. Both books are available at Amazon in both digital and paperback format. His blog is dcjottings.blogspot.com. He can be reached at firstname.lastname@example.org.